Dear Santa, all I want for Christmas is deductions!
Okay, so we don’t have to be Santa to know what’s on every business owners list this year – deductions.
Each Christmas business owners big and small ask us what they can deduct from work Christmas parties and gifts. Sound like a question you have? We thought so, keep reading!
So here’s what you need to know.
FBT stands for Fringe Benefits Tax and it’s important to understand that there is no independent fringe benefits tax (FBT) category for Christmas parties. However, certain aspects of your Christmas party may be exempt from FBT if they can pass as a minor and infrequent benefit.
A minor benefit is defined by the ATO as a benefit that is ‘less than $300 in notional taxable value’ and ‘unreasonable to treat as a fringe benefit’. Under this definition, you may be eligible for relief from FBT as long as the cost per head does not exceed $300. To calculate this simply divide the total cost of the party by the number of attendees.
“Always remember that if an item is exempt from FBT then it is not tax deductible nor can you claim the GST credits.”
The $300 limit also applies to Christmas gifts you provide to your staff however the deductibility and GST treatment is based on whether the gift is “entertainment” or “non-entertainment”. To get the best outcome we recommend providing “non-entertainment” gifts (e.g. skincare & beauty products, flowers, wine, perfumes, gift vouchers and hampers) costing less than $300 and you will be able to claim a tax deduction plus claim the GST.
For the entire cost of a Christmas party to be a deductible expense the Christmas party must meet the following criteria:
- Held on your business premises
- Held on a working day
- Held for current employees, volunteers, customers, and suppliers only
- No alcohol
- Only finger food or a light meal provided
- No employee associates (e.g. spouses, children, etc.) present
If a Christmas party includes any of the following elements, the entire cost in non-deductible:
- Alcohol is served
- Employee associates (e.g. spouses, children, etc.) attending
- Held at a location other than your business premises
The Christmas Deduction Wrap-up
In summary, you can avoid FBT during the festive season by keeping the per head costs below $300 but the expenditure will be non-deductible entertainment.
Some may argue that ensuring your Christmas party is tax deductible by complying with the above criteria is not in the best interests of staff moral and certainly not inductive to building strong relationships and fostering a positive work culture within your business.